Ferroglobe PLC Q3 2021 Financial Summary
Business Context and Reporting Period
This Form 6-K filing, dated November 16, 2021, reports the unaudited financial results for Ferroglobe PLC for the third quarter ended September 30, 2021. Ferroglobe is a global producer of silicon metal, silicon-based, and manganese-based specialty alloys. The quarter was characterized by strong pricing environments across all product segments, partially offset by operational disruptions and rising input costs, particularly energy in Spain.
Key Financial Metrics
| Metric | Q3 2021 | Q2 2021 | Q3 2020 |
|---|---|---|---|
| Sales | $429.2 million | $418.5 million | $262.7 million |
| Net Loss | ($97.6) million | $0.7 million profit | ($46.8) million |
| Adjusted EBITDA | $37.6 million | $34.1 million | $22.2 million |
| Adjusted EBITDA Margin | 8.8% | 8.1% | 8.5% |
| Operating Cash Flow | ($34.7) million | ($3.2) million | $23.0 million |
| Net Debt | $404.2 million | $358.1 million | $294.9 million |
| Cash and Restricted Cash | $95.0 million | $106.1 million | $147.4 million |
Material Changes vs. Prior Periods
- Revenue Growth: Sales increased 2.5% quarter-over-quarter (QoQ) and 63.4% year-over-year (YoY). This growth was driven by a 6.3% increase in average selling prices, which offset a 3.4% decline in total shipment volumes.
- Profitability Impact: The reported net loss of $97.6 million includes a significant one-time non-cash charge of $90.8 million related to debt extinguishment from a refinancing transaction. Excluding this charge, the adjusted net loss was $64.2 million.
- Cost Pressures: Cost of sales as a percentage of sales rose to 68.8% from 64.0% in Q2, primarily due to higher energy costs in Spain and inflationary pressures on inputs like coal and coke.
- Volume Trends: Silicon metal volumes fell 8.3% QoQ due to curtailments in Spain and the US. Silicon-based alloys volumes dropped 14.3% due to operational disturbances and seasonality. Conversely, manganese-based alloys volumes rose 11.9%.
- Liquidity: Operating cash flow turned negative ($34.7 million) due to a $61.6 million increase in working capital, driven by inventory build-up and higher accounts receivable to support anticipated demand.
Guidance, Outlook, and Risks
- Outlook: Management expects the year to end on a favorable note with strong momentum into Q4. The 2022 order book is described as well-positioned to capitalize on upside pricing. Management anticipates a "step-change" in financial performance in 2022.
- Refinancing: The company completed a comprehensive refinancing, extending the maturity of Senior Notes from 2022 to 2025 and issuing $60 million in Super Senior Secured Notes. This resulted in the $90.8 million accounting charge.
- Strategic Restructuring: On November 15, 2021, Ferroglobe reached an agreement with the French Government regarding its restructuring process. The Château-Feuillet facility will cease production, with capabilities transferred to the Les Clavaux facility, which will be modernized.
- Risks: Key risks include continued high energy prices (specifically in Spain), inflationary pressures on raw materials, operational disruptions, and the ongoing impact of COVID-19 on logistics and demand.
- Capital Raising: The company entered an equity distribution agreement allowing for the sale of up to $100 million in shares. As of the filing date, $1.4 million had been raised.
Investor Verification Checklist
- Debt Extinguishment Charge: Verify the composition of the $90.8 million one-time charge (advisory fees, equity grants, and fair value adjustments) to understand the non-recurring nature of the net loss.
- Energy Cost Exposure: Assess the sensitivity of future margins to energy prices in Spain, which significantly impacted Q3 cost of sales.
- Working Capital Management: Monitor the trend in inventory and accounts receivable to ensure the negative operating cash flow is temporary and linked to strategic stockpiling rather than collection issues.
- Operational Recovery: Track volume recovery in Silicon Metal and Silicon-based alloys segments following the reported curtailments and maintenance stoppages.
- French Restructuring Execution: Confirm the timeline and cost implications of the facility closure in Château-Feuillet and the modernization of Les Clavaux.